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I had a question about my house going into foreclosure? I

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also filed for bankruptcy and...
I had a question about my house going into foreclosure? I also filed for bankruptcy and that process is done now. My question, is will there be any money that i owe to the IRS after my forclosure goes through? I know they had the mortgage relief act that expired in 2014! I live in Massachuesstts.
Submitted: 2 years ago.Category: Tax
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Answered in 4 minutes by:
10/22/2015
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,220
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi,

...

I'm not sure I completely understand your question

...

Are you asking about COD (Cancellation of debt) income?

...

If the lender does not send a 1099-C then there has, s of yet, been no forgiveness and hece no income (or tax)

...

OR, are you asking about whether taxes owed before the bankruptcy are still owed?

...

Give me a little more detail if you would, and we'll go from there

...

I'll be here

...

LAne

.

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Customer reply replied 2 years ago
Hi, yes i have not gone through the whole forclosure process yet, but wanted to know what the tax liablity would be if they do send me a 1099-C? I owe $250,000 on the house but its probably worth about $125,000?
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

OK,

...

The amount that's forgiven is the amount of income. Meaning debt still owed MINUS what they get out of the house at foreclosure sale ... so 250,000 - 125,000 = 125000

...

However, if you can show insolvency (you do this by including form 982 with your tax return) on the date BEFORE the debt was forgiven (there will be a date on the 1099-C is you DO get one) then you can use the 982 to EXCLUDE this income.

...

Insolvency means total value of assets minus value of debts (INCLUDING that 250,000)

...

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

and finally.

...

Massachusetts is a recourse state, meaning that lenders have the right to seek a deficiency judgment against a homeowner who defaults on a loan obligation.

...

SO, the lender will decide to either pursue a deficiency judgment against you after the sale or they will agree to cancel the remaining debt.

...

It's only if (and if so, when) they DO cancel the remaining debt that they'll send that 1099-C.

...

Then, if you can show insolvency on the day before the foreclosure, you can use form 982 to exclude the debt.

...

I hope this has helped.

..

If this HAS helped, (and you don’t have additional questions on this), I'd really appreciate your positive rating … (by clicking or touching the stars or smileys on your screen) … … That’s the only way I'll be credited a portion of what you've paid JustAnswer.

...

Thank you,

Lane

.

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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
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